Student loan refinancing can be a great way to lower your monthly payments and the amount of interest you pay over the life of your student loan. However, not everyone should refinance—only about 10–20% of all student loan borrowers should consider refinancing their loans.
These borrowers include those that already have private student loans, and Federal loan borrowers who are on the Standard 10-year repayment plan and plan to pay off their loans within 5–7 years.
The reason that student loan refinancing can make sense is that it has the potential to significantly save on interest expense. The best interest rates for student loan refinancing hover around 1.95% APR. That can be a huge savings if you're currently paying 5% or more.
Most lenders don't want you to know this, but you can negotiate your refinancing offer. Here's how to do it!
Step 1—Shop around
If you're thinking about refinancing your student loan, you must shop around. This means getting quotes and comparing rates from at least three to five lenders before making a decision.
It doesn't take long to shop around. You can easily get a quote from most lenders in five to ten minutes. Just go to a major lender comparison list, check out a few of the major lenders, and submit an application. Given that there are about 12 major lenders, it's not hard to get a few quotes pretty quickly.
Step 2—Make lenders compete against each other
Once you have three to five quotes, it's time to make the lenders compete against each other.
The trick here is to take a PDF of your offer (either a screenshot or email) and send it to the customer service of the other companies and see if they can beat it.
A simple script is “I'd really like to work with your company, but having the best rate is what will really make the difference. Is there any way you can beat the rate offered by XXXXX company? I attached it here so you can see.”
In many cases, you'll see the other company compete for your business. Various Redditors have reported saving over 1% APR on their loans by shopping around and having lenders compete against each other.
Step 3—Don't forget to check for bonus offers
Another important aspect to consider is a refinancing bonus offer. Many lenders will not only match rates, but will also add an additional bonus for using their company.
Right now, the top student loan bonus offers can be $1,000. Last year there were bonus offers reported up to $2,000.
Many of the highest bonus offers do require high loan balances (such as at least $100,000), but it's not uncommon to see $200 or $300 for lower balances—even as low as $25,000.
But this is another area that has the potential to be negotiated. You should never trade a bonus offer for a higher interest rate, unless you know the savings doesn't outweigh the cost. But that is rare.
It's surprising for many student loan borrowers to learn that student loan refinancing rates can be negotiated. But given the tough competition in the market, lenders will work to earn your business.
For some lenders, student loan refinancing is a gateway to creating lifetime customers of other products (such as banking or investments), so for them, negotiating a little on your interest rate could pave the way for you to work with them for a long time.